SEC Names Jaime Klima Chief Counsel

The Securities and Exchange Commission today announced that Jaime Klima has been named Chief Counsel to Chairman Jay Clayton. 

As Chief Counsel, Ms. Klima will be senior legal and policy adviser, and will coordinate the rulemaking agenda of the Commission.  She will also serve as the Chairman’s representative on the Deputies Committee of the Financial Stability Oversight Council.

“I am thrilled that Jaime has agreed to serve the Commission in this key role,” said Chairman Jay Clayton. “I am pleased that Jaime’s legal acumen and experience will continue to benefit the SEC and its team of committed professionals.”

Most recently, Ms. Klima served as SEC co-chief of staff under then-Acting Chairman Michael S. Piwowar, advising on all issues of agency management and policy.  Before that, she was counsel to Commissioner Piwowar and Commissioner Troy A. Paredes. In those roles, Ms. Klima covered a wide range of issues including rulemaking and enforcement matters.

Prior to working at the SEC, Ms. Klima practiced law at Wilmer Cutler Pickering Hale and Dorr LLP, specializing in broker-dealer compliance and regulation. She also clerked for the Honorable Richard Lowell Nygaard of the U.S. Court of Appeals for the Third Circuit. 

Ms. Klima earned her J.D., cum laude, from Duke University School of Law, a Master of Public Policy, also from Duke, and an undergraduate degree in Systems Engineering, with distinction, from the University of Virginia.

SEC Names Sean Memon Deputy Chief of Staff

The Securities and Exchange Commission today announced that Sean Memon has been named the agency’s deputy chief of staff.

“Sean has proven to have extensive knowledge of financial regulation and coordination across our various markets. I commend his willingness to share his expertise here at the SEC as we further the agency’s important mission,” said Chairman Jay Clayton.

Mr. Memon arrived at the SEC with experience providing advice to public and private companies in both legal and financial roles. Immediately prior to joining the SEC, Mr. Memon practiced law at Sullivan & Cromwell LLP in Washington, D.C., where he advised clients in regulatory and transactional matters, including with respect to capital raisings, mergers and acquisitions and joint ventures. Mr. Memon also advised companies on matters involving financial technology and the development of new products and services.

Previously, Mr. Memon was a member of the Finance and Acquisitions department at Time Warner Inc., where he worked on long-term business planning efforts and performed quantitative valuation and financial impact analysis for potential new business initiatives and transactions. Prior to Time Warner, Mr. Memon was an analyst in the investment banking groups of Raymond James & Associates and Morgan Stanley & Co., where he worked with technology companies on capital raising activities and mergers and acquisitions.

Mr. Memon received J.D. and MBA degrees from Duke University and an A.B. in economics from Harvard College.

SEC Charges Former Head Traders at Nomura With Fraud

The Securities and Exchange Commission today charged a pair of former head traders who ran the commercial mortgage-backed securities (CMBS) desk at Nomura Securities International Inc. with deliberately lying to customers in order to inflate the profits of the CMBS desk and line their own pockets as a result.

The SEC alleges that James Im and Kee Chan each misrepresented price information while acting as intermediaries on trades with Nomura’s customers who sought to buy and sell CMBS on the secondary market.  In certain instances, Im and Chan allegedly pretended they were still negotiating bond purchases with a third-party seller at higher prices when Nomura had already acquired the bonds at a lower price.

The SEC alleges that in one instance, Im bragged about his purposeful deception of a customer, and Chan once altered an email to a customer to prop up his lie about the bid price for a bond.  According to the SEC’s complaints, Chan and Im fraudulently generated more than $750,000 in extra trading profits for the CMBS desk, and they received substantial bonuses based largely on the desk’s performance.

Chan agreed to settle the charges by paying $51,965 in disgorgement plus $11,758 in interest and a $150,000 penalty.  Without admitting or denying the allegations, Chan also agreed to be barred from the securities industry with the right to reapply after three years.  The settlement is subject to court approval.  The case continues against Im.

“As alleged in our complaints, Im and Chan operated under cover of an opaque CMBS secondary market to gain illegal trading profits and potentially larger bonuses by lying to firms on the other side of their trades about the prices at which they were buying and selling securities,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

The SEC’s complaints, filed in federal court in Manhattan, charge Chan and Im with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5. 

The SEC’s investigation, which is ongoing, has been conducted by Ladan Stewart, Chevon Walker and George Stepaniuk of the New York office.  The litigation against Im will be handled by Richard Hong, Ms. Stewart and Ms. Walker.  The case is being supervised by Sanjay Wadhwa.

Law Firm Partner and Neighbor Charged in $1 Million Insider Trading Scheme

The Securities and Exchange Commission today charged a former partner at an international law firm and his neighbor with making more than $1 million in illicit profits by insider trading around corporate announcements.

The SEC alleges that Walter C. Little accessed confidential documents on his law firm’s internal computer network related to at least 11 impending announcements involving law firm clients, none of which he personally advised or billed for services.  Little then allegedly traded in advance of each announcement and often tipped his neighbor Andrew M. Berke with material nonpublic information so he could similarly trade in company stocks before the announcements were made publicly.  According to the SEC’s complaint, the insider trading occurred from February 2015 to February 2016.

“As alleged in our complaint, Little used highly-confidential information about his law firm’s clients to make more than $1 million for himself and his neighbor through illegal insider trading and tipping,” said Stephanie Avakian, Acting Director of the SEC’s Enforcement Division.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Little and Berke.

The SEC’s complaint charges Little and Berke with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 as well as Section 17(a) of the Securities Act of 1933.  The complaint seeks disgorgement of ill-gotten gains plus prejudgment interest, penalties, and permanent injunctions.

The SEC’s investigation was conducted by Richard Kutchey and Gregory Faragasso.  The case was supervised by Gerald Hodgkins, and the litigation is being led by Kevin Lombardi and Charles Stodghill.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, Federal Bureau of Investigation, and Financial Industry Regulatory Authority.

Barclays to Pay $97 Million for Overcharging Clients

The Securities and Exchange Commission today announced an enforcement action requiring Barclays Capital to refund advisory fees or mutual fund sales charges to clients who were overcharged.

In a settlement of more than $97 million, Barclays agreed to settle three sets of violations that resulted in clients being overbilled by nearly $50 million.  The SEC’s order finds that two Barclays advisory programs charged fees to more than 2,000 clients for due diligence and monitoring of certain third-party investment managers and investment strategies when in fact these services weren’t being performed as represented.  Barclays also collected excess mutual fund sales charges or fees from 63 brokerage clients by recommending more expensive share classes when less expensive share classes were available.  Another 22,138 accounts paid excess fees to Barclays due to miscalculations and billing errors by the firm.

“Barclays failed to ensure that clients were receiving the services they were paying for,” said C. Dabney O’Riordan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “Each set of clients who were harmed are being refunded through the settlement.”

The SEC’s order finds that Barclays violated Sections 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rule 206(4)-7 as well as Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.

Without admitting or denying the SEC’s findings, Barclays agreed to create a Fair Fund to refund advisory fees to harmed clients.  The Fair Fund will consist of $49,785,417 in disgorgement plus $13,752,242 in interest and a $30 million penalty.  Barclays will directly refund an additional $3.5 million to advisory clients who invested in third-party investment managers and investment strategies that underperformed while going unmonitored.  Those funds also will go to brokerage clients who were steered into more expensive mutual fund share classes.

The SEC’s investigation was conducted by Gwen Licardo of the Asset Management Unit, and the case was supervised by Valerie A. Szczepanik of the New York Regional Office.  An SEC examination that led to the investigation was conducted by investment adviser examiners in the New York Regional Office.

William Hinman Named Director of Division of Corporation Finance

The Securities and Exchange Commission today announced that William H. Hinman will be named the new director of the agency’s Division of Corporation Finance.

Mr. Hinman recently retired as a partner in the Silicon Valley office of Simpson Thacher & Bartlett LLP, where he was a recognized leader in advising public and private companies in corporate finance matters.  He has advised a wide range of issuers and underwriters in capital-raising transactions and corporate acquisitions, including in the technology, e-commerce, health care, and biopharmaceutical areas. 

Mr. Hinman also is respected for his advice to public companies and their boards on public reporting, governance, and other corporate matters, and he has significant experience regarding derivatives, novel securities, and private placements.  He has spoken on these subjects at the Annual Institutes on Securities Laws sponsored by the Practising Law Institute and has taught International Securities Regulation at Stanford Law School and the U.C. Berkeley School of Law.

“Bill is widely recognized for his judgment and expertise in the area of corporate finance. He also is a proven leader, mentor, and counselor. I know the SEC and the people it serves will benefit greatly from his valuable experience,” said SEC Chairman Jay Clayton. “He has spent the last 37 years working in our public and private markets, and he understands the SEC’s mission to promote capital formation while ensuring that investors have the information necessary to make informed decisions.”

Mr. Hinman added, “I am greatly honored to have the opportunity to serve this agency and the American people who rely on its work.  I have worked closely with the dedicated and talented staff of the Division of Corporation Finance throughout my career in private practice, and it will be a privilege to work with them to advance the SEC’s mission.”

Prior to joining Simpson Thacher as a partner in 2000, Mr. Hinman was the managing partner of Shearman & Sterling’s San Francisco and Menlo Park offices.  He received his B.A. from Michigan State University with honors in 1977 and his J.D. in 1980 from Cornell University Law School, where he was a member of the Editorial Board of the Cornell Law Review.  He is a member of the Bar Association of the State of California and the Association of the Bar of the City of New York.  Mr. Hinman also is a fellow of the American Bar Foundation.

SEC Charges Former Staffer With Securities Fraud Violations

The Securities and Exchange Commission today charged a former employee with securities fraud in connection with his trading of options and other securities.

The SEC’s complaint alleges that David R. Humphrey, who worked at the SEC from 1998 to 2014, concealed his personal trading from the SEC’s ethics office and later misrepresented his trading activities to the SEC’s Office of Inspector General when questioned during an investigation. 

“As alleged in our complaint, Humphrey never sought pre-clearance for his prohibited options trades and he filed forms that falsely represented his securities holdings,” said Gerald W. Hodgkins, Associate Director in the SEC’s Division of Enforcement. 

SEC employees are subject to rigorous rules regarding securities transactions to guard against even the appearance of using public office for private gain.  The ethics rules specifically prohibit trading in options or derivatives.  The rules also require staff to disclose their securities holdings and transactions to the agency’s ethics office in annual filings. 

According to the SEC’s complaint, Humphrey violated the rules by engaging in transactions involving derivatives, failing to obtain pre-clearance before trading non-prohibited securities, and failing to hold securities for the required period.

The SEC’s complaint charges Humphrey with violating Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act.  Humphrey has agreed to settle the charges and pay $51,917 in disgorgement of profits made in the improper trades plus $4,774 in interest and a $51,917 penalty.  Humphrey also agreed to be permanently suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies.  The settlement is subject to court approval.

In a parallel action, the Department of Justice today announced that Humphrey has pleaded guilty to criminal charges stemming from his false federal filings.

The SEC’s investigation was conducted by Gary M. Zinkgraf and Tom Bednar, and the case was supervised by Jeffrey Weiss.  The SEC appreciates the assistance of the U.S. Department of Justice’s Fraud Section.

SEC Announces Agenda for May 10 Meeting of the Advisory Committee on Small and Emerging Companies

The Securities and Exchange Commission today announced the agenda for the May 10 meeting of its Advisory Committee on Small and Emerging Companies.  The committee will discuss the underwriting of small offerings and will receive updates from SEC staff about the tick size pilot program and from state securities regulators about their latest enforcement report.  The committee also will consider recommendations on secondary market liquidity for Regulation A, Tier 2 securities and the treatment of so-called “finders” that assist companies in capital raising activities.

The May 10 meeting will begin at 9:00 a.m. in the multipurpose room at the SEC’s headquarters at 100 F Street, N.E., Washington, D.C., and is open to the public.  It will be webcast live on the SEC’s website and archived on the website for later viewing. 

The committee provides a formal mechanism for the SEC to receive advice and recommendations on privately held small businesses and publicly traded companies with a market capitalization less than $250 million.

Members of the public who wish to provide their views on the matters to be considered by the committee may submit comments electronically or on paper.  Please submit comments using one method only.  Information that is submitted will become part of the public record of the meeting.

Electronic submissions:

Use the SEC’s Internet submission form or send an e-mail to rule-comments@sec.gov.

Paper submissions:

Send paper submissions to Brent Fields, Secretary, Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-1090.

All submissions should refer to File Number 265-27, and the file number should be included on the subject line if e-mail is used.

Agenda

Jay Clayton Sworn in as Chairman of SEC

Jay Clayton was sworn into office this afternoon by U.S. Supreme Court Justice Anthony M. Kennedy as the 32nd Chairman of the Securities and Exchange Commission.

“It is a tremendous honor to lead the SEC and to be sworn in by Justice Kennedy, whom I greatly admire,” said Chairman Clayton. “The work of the SEC is fundamental to growing the economy, creating jobs, and providing investors and entrepreneurs with a share of the American Dream. I would like to thank Acting Chairman Piwowar for his leadership, and I look forward to working with my fellow Commissioners and the talented SEC staff to ensure that our markets remain the safest and most vibrant markets in the world.”

Mr. Clayton was nominated to chair the U.S. Securities and Exchange Commission on January 20, 2017, by President Donald Trump and confirmed by the U.S. Senate on May 2, 2017.

Prior to joining the Commission, Mr. Clayton was a partner at Sullivan & Cromwell LLP, where for over 20 years he advised public and private companies on a wide range of matters, including securities offerings, mergers and acquisitions, corporate governance, and regulatory and enforcement proceedings. His experience includes counseling companies in various industries and advising market participants on capital raising and trading matters in the United States and abroad, including while resident in Europe for five years.

Mr. Clayton has authored publications on securities law, cybersecurity, and other regulatory issues. From 2009 to 2017, he was an Adjunct Professor at the University of Pennsylvania Law School, teaching “M&A Through the Business Cycle” each spring semester as well as guest lecturing in other classes and at other institutions.

Prior to joining Sullivan & Cromwell, Mr. Clayton served as a law clerk for the Honorable Marvin Katz of the U.S. District Court for the Eastern District of Pennsylvania. A member of the New York and Washington, D.C. bars, Mr. Clayton studied and received degrees in engineering, economics, and law. He earned a B.S. in Engineering from the University of Pennsylvania, where he was the recipient of the Thouron Award for post-graduate study in the United Kingdom, enabling him to earn a B.A. and M.A. in Economics from the University of Cambridge. Mr. Clayton received a J.D. from the University of Pennsylvania Law School.

Firm, CEO Settle Charges in Ponzi-Like Scheme Involving Life Settlements

The Securities and Exchange Commission today announced that a New Jersey-based firm and its CEO have agreed to pay more than $4 million to settle charges that they used new investor money to repay earlier investors in Ponzi-like fashion and tapped investor funds for the CEO’s personal use.

According to the SEC’s complaint, Verto Capital Management and William Schantz III raised approximately $12.5 million selling promissory notes to purportedly fund Verto Capital’s purchase and sale of life settlements, which are life insurance policies sold in the secondary market.  The SEC alleges that they misrepresented to investors that Verto Capital was a profitable company and investor funds would be used for general working capital purposes.  Verto Capital and other Schantz businesses had been unprofitable for several years, according to the SEC’s complaint, and Schantz resorted to taking disproportionately large distributions of investor funds for himself and using new investor money to repay earlier investors. 

Verto Capital and Schantz also allegedly made misrepresentations to investors about the safety of the notes and collateral underlying them.  The SEC alleges that the promissory notes were primarily sold through a group of insurance brokers in Texas, and religious investors were targeted.

“As alleged in our complaint, investors were told that the life settlement-backed notes were short-term investments with an unlikely event of default.  Schantz and Verto misled investors about the company’s past performance and the value of the collateral, and they diverted significant investor funds for Schantz’s personal use,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

A Fair Fund will be created to return money collected in the settlement to harmed investors.  Schantz and Verto Capital agreed to pay disgorgement of $3,433,666 plus interest of $124,851 and a penalty of $600,000.  Without admitting or denying the allegations, they consented to permanent injunctions against further violations of Section 17(a)(2) and (3) and Section 5 of the Securities Act of 1933.  Schantz further agreed to be enjoined from selling any promissory notes.  The settlement is subject to court approval.

The SEC’s investigation, which is continuing, is being conducted by Jennifer K. Vakiener, Vincent T. Hull, Christopher Mele, Thomas Feretic, and Steven G. Rawlings in the New York office.  The case is being supervised by Lara S. Mehraban.  The SEC examination that led to the investigation was conducted by Steven C. Vitulano, Terrence P. Bohan, and Edward J. Janowsky in the New York office.

SEC Staff Supplements Quarterly Private Funds Statistics

The U.S. Securities and Exchange Commission staff today published a suite of new data and analyses of private fund statistics and trends.

The Private Funds Statistics, released quarterly since October 2015 by the Division of Investment Management’s Risk and Examinations Office, offers investors and other market participants valuable insights by aggregating data reported by private fund advisers on Form ADV and Form PF.  New analyses include information about the use of financial and economic leverage by hedge funds, and characteristics of private liquidity funds.

“We believe publishing these statistics provides the public with more transparency into and understanding of the private funds industry,” said Acting Chairman Michael Piwowar. “The additional statistical analyses represent a continued focus on using data to inform policy and provide public information and will continue to facilitate feedback and analysis that could be used by the Commission and others.”

With 90 separate tables and figures, the report provides comprehensive analysis of hedge fund industry practices, such as the use of economic and financial leverage, investment strategies, collateralization of borrowings, and investment category exposures. These new statistics supplement information about numbers and types of funds, the gross and net assets of funds, the distribution of borrowings, analysis of gross notional exposure to net asset value, and a comparison of average hedge fund investor and hedge fund portfolio liquidity.

About the Data Sources

Form ADV is used by investment advisers to register with the Commission and or certain state securities authorities. Advisers must report on Form ADV general information about private funds that they manage, such as basic organizational and operational information, fund size and ownership.

Form PF is filed by SEC-registered investment advisers with at least $150 million in private funds assets under management to report information about the private funds that they manage. Most advisers file Form PF annually to report general information such as the types of private funds advised (e.g., hedge funds or private equity), each fund’s size, leverage, liquidity and types of investors. Certain larger advisers provide more information on a more frequent basis (including more detailed information on certain larger funds).

SEC, FINRA Announce National Compliance Outreach Program for Broker-Dealers

Cybersecurity, investing by seniors, and other regulatory topics of interest will be discussed when the Securities and Exchange Commission and Financial Industry Regulatory Authority (FINRA) hold their National Compliance Outreach Program for Broker-Dealers on July 27. 

Registration opened today for the program, which is designed to provide an open forum for regulators and industry professionals, including compliance, audit, and other senior personnel of broker-dealer firms and branch offices, to discuss current compliance practices and promote an effective compliance structure for the protection of investors.

The SEC’s Office of Compliance Inspections and Examinations (OCIE) and FINRA sponsor the program in coordination with the SEC’s Division of Trading and Markets.  It will be held at the SEC’s Washington D.C., headquarters from 10:30 a.m. to 4:45 p.m. 

Peter Driscoll, Acting Director of OCIE’s National Examination Program said, “The Compliance Outreach Program for Broker-Dealers helps to facilitate effective communication and transparency and furthers the mission to protect investors and maintain fair, orderly, and efficient markets.”

Susan Axelrod, FINRA Executive Vice President of Regulatory Operations said, “FINRA is pleased to continue our successful partnership with the SEC to provide this opportunity for broker-dealer senior personnel, particularly compliance officers, and regulators to foster open lines of communication and work together.”  

There is no cost to attend the event, but in-person attendance is limited to 500 on a first-come, first-served basis.  There will be a maximum of 10 attendees per firm.  The event will be webcast live on the SEC’s website, but CPE credits will be available to in-person attendees only.

Visit the SEC’s website or FINRA’s website for additional details on the 2017 National Compliance Outreach Program for Broker-Dealers, including the agenda and information on how to register for the event.